On Tuesday, Apollo Global Management (NYSE:APO) experienced a revision in its stock outlook as an analyst from Argus reduced the price target to $125 from the previous $135, while the Buy rating on the stock was upheld. The adjustment follows Apollo's second-quarter financial performance, which saw a slight dip in distributable earnings and faced challenges due to increased funding costs.
Apollo Global Management reported adjusted distributable earnings of $1.64 per share for the second quarter of 2024 on August 1, marking a decrease from the $1.70 per share recorded the same period last year. The results fell short of the anticipated consensus of $1.75 per share. Despite this, the company's revenue saw a modest increase of 2% year-over-year, reaching $2.1 billion.
The company's recent financial hurdles were attributed to rising funding costs, which became more burdensome as the low-cost funding options available during the pandemic started to expire. Apollo also engaged in hedging strategies in anticipation of a potential decrease in interest rates, which consequently tempered the near-term growth projections for its Retirement Services segment.
Nevertheless, the analyst from Argus expressed a positive outlook on Apollo's capacity for growth in fee- and spread-related earnings. The firm highlighted that while higher interest rates pose challenges, they could also attract more investments into Apollo's substantial fixed-income segment. As a response to the increased funding costs, Argus has recalibrated its earnings estimates for Apollo and adjusted the target price accordingly.
The new price target of $125 reflects 18 times the firm's projected distributable earnings for 2024. This valuation adjustment takes into account the current financial landscape that Apollo navigates, balancing the impacts of funding costs against the strengths in its earnings potential.
InvestingPro Insights
Amidst the revisions and market adjustments, Apollo Global Management (NYSE:APO) presents a multifaceted picture to investors. According to InvestingPro data, Apollo boasts a market capitalization of $63.49 billion and trades at a Price/Earnings (P/E) ratio of 11.98, which adjusts slightly higher to 12.38 when considering the last twelve months as of Q2 2024. Despite a revenue contraction of 2.78% during the same period, Apollo's financial health is underscored by a robust gross profit margin of 37.18% and an operating income margin of 22.48%, indicating efficient management and strong profitability potential.
InvestingPro Tips reveal that Apollo has maintained dividend payments for 14 consecutive years, with a dividend yield of 1.66% as of the latest data, and a dividend growth of 7.56% in the last twelve months as of Q2 2024. This consistency in rewarding shareholders is a testament to Apollo's financial stability and commitment to returning value. Moreover, the company's liquid assets surpass its short-term obligations, providing a cushion against market volatility. For investors seeking further insights, there are additional InvestingPro Tips available that delve deeper into Apollo's financial nuances and market position.
The revised analyst price target aligns with InvestingPro's fair value estimate of $159.35, suggesting a potential undervaluation at Apollo's previous closing price of $111.61. For those considering Apollo as an investment, the company's status as a prominent player in the Financial Services industry and its ability to remain profitable over the last twelve months, as indicated by an InvestingPro Tip, are factors worth noting. To explore the full scope of Apollo's investment profile, more detailed analysis and tips can be found on InvestingPro's platform.
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